Cello Energy – Gigaomhttps://gigaom.com
The industry leader in emerging technology researchMon, 25 Sep 2017 15:05:19 +0000en-UShourly1As KiOR crashes, it’s another cautionary tale for energy innovationhttps://gigaom.com/2014/03/25/as-kior-stumbles-its-another-cautionary-tale-for-energy-innovation/
https://gigaom.com/2014/03/25/as-kior-stumbles-its-another-cautionary-tale-for-energy-innovation/#commentsTue, 25 Mar 2014 13:00:50 +0000http://gigaom.com/?p=827137On a foggy spring morning in 2010, at a lodge at the base of the north side of the Golden Gate Bridge, a group of investors, entrepreneurs and members of the media gathered together. Outside, the smell of eucalyptus trees and the view of the wide bay and urban San Francisco across it created a calming effect. Inside, the group — some of whom possessed a net worth that stretched into the billions of dollars — were excitedly discussing some of the most promising technology ideas around that could get the world off dirty oil and coal and onto cleaner energy sources.

The occasion was the limited partner meeting for Silicon Valley venture firm Khosla Ventures, and it was a chance for the firm to show off its most interesting companies to investors that had put money into their funds. Former British Prime Minister Tony Blair, who had just been named a Senior Advisor to Khosla Ventures, was in the room. Bill Gates, an investor in the fund, was also in attendance. A half year earlier Khosla Ventures had closed on $1 billion for two new funds (its first from outside investors beyond partner Vinod Khosla) and a year and a half later Khosla Ventures would close on another $1 billion fund.

View from Cavallo Point, North of San Francisco.

One of the bright young startups that was highlighted at the meeting was KiOR, a company from Pasadena, Texas (next to Houston), which had developed a technology that could turn plant waste — like wood chips and grasses — into a bio version of crude oil that could be used in regular vehicles. At one point during the event, Vinod Khosla said he thought KiOR had the potential to be so transformative that the startup could disrupt no less than the leaders of major oil exporting nations like Venezuela President Hugo Chavez and Iranian President Mahmoud Ahmadinejad.

A little over a year after that meeting, KiOR went public in the summer of 2011. At the $15 per share IPO price, Khosla Ventures’ shares were worth about $830 million. A couple months later when KiOR’s shares rose to $23.85 per share, Khosla’s portion was worth $1.32 billion. That summer, shortly before the IPO, former Secretary of State Condoleezza Rice joined KiOR’s board. The company seemed to have made it.

The problem was that KiOR hadn’t yet crossed the so-called Valley of Death — that expensive, time-consuming, gap between production on a a very small scale and large-scale commercial production. It’s that phase that tends to eat cleantech companies alive, particularly biofuel startups. As I said in this article two years ago, KiOR might have been promising but it also was a prime example of the difficulties of early-stage cleantech innovation and investing.

KiOR’s stock price from IPO in Summer 2011 to present under $1 per share.

Today, KiOR still hasn’t crossed that chasm and now seems to have succumbed to it. This month the company started trading under $1 per share. It is the subject of two lawsuits from investors, the progress of its Mississippi plant is being investigated by the SEC, and KiOR recently disclosed that it could default on its debts (including to the state of Mississippi) and file for bankruptcy if it doesn’t find more funding soon. KiOR has also idled the plant that it spent hundreds of millions of dollars building.

If its stock stays under $1 per share for a month it could be delisted. Insiders (like the CEO, the interim CFO, the VP of commercialization and major hedge fund backer Artis Captial) have been selling off shares as of late. Condoleezza Rice — who never played a role in the company — resigned in December of last year. Other key executives have left, too, like the previous CFO, who left abruptly in December of last year.

The company is clearly unraveling. What happened?

What was Kior’s bet?

KiOR’s biggest promise was a dream: what its technology could accomplish and how much it could change the world if it could scale. The company emerged in late 2007 as a joint venture between a Netherlands-based biofuel startup called BIOeCON and Khosla Ventures. The team’s idea was to use a thermochemical technique that’s been used by the oil industry for decades, called “biomass catalytic cracking,” to break open plant wastes and turn that into a bio version of crude oil.

KiOR’s plant in Columbus, Mississippi

The secret sauce to the technology is the catalyst, which is a fine white powder. KiOR’s CEO Fred Cannon once described the powder as something that could reduce the millions of years that it takes for nature to turn biomass into fossil fuels into mere seconds. Using the catalyst KiOR could convert biomass directly into oils at lower temperatures and with simpler equipment than required for gasification (another biofuel technique), making it less expensive than competitors.

When KiOR emerged in 2007 it was one of a dozen startups that were trying to crack open the market for cellulosic ethanol. While making ethanol out of corn in the U.S. — and from sugarcane in South America — had taken hold, turning more difficult non-food plant parts into ethanol was turning out to be a lot harder. But companies were using new technologies, like synthetic biology, to try new techniques.

Many companies emerged in the mid-2000s to try to tackle this problem, and a good portion of them received funding from Khosla Ventures. At a lecture in 2007 Khosla told an audience his “real love” was cellulosic biofuels.

2007 was also a year where a bubble was starting to grow around cleantech investing in Silicon Valley. As former Venrock investor Matthew Nordan described it in this post for Gigaom, cleantech startup financing rose by 50 percent annually for three years between 2006 and 2008, and exceeded $4.5 billion in 2008. That was about the peak of the bubble before investors started to pull back, particularly for new, early stage cleantech companies, in the following years.

What happened with KiOR?

While KiOR has long been one of the more promising cellulosic ethanol startups, its real world problems started last summer. At the end of 2012 it actually hit a major milestone and started producing its biocrude at its facility in Columbus, Mississippi. Cannon said in an earnings call that year that the upcoming planned shipments would be “the world’s first cellulosic gasoline and diesel fuel products.”

KiOR’s plant in Columbus, Mississippi, image courtesy of KiOR

But by the summer of 2013 it was clear that KiOR wasn’t reaching the volumes at the factory that it wanted; not anywhere close. It disclosed in an earnings statement that summer that it had produced 75 percent less biocrude than it had forecasted. Turns out, it hadn’t achieved a steady state of production and it was having some significant problems with quality, with efficiency, and with bottlenecks in the plant. Critic Robert Rapier noted in an article on Monday that biofuel yields from the type of process that KiOR is using “tend to be low because a lot of the pyrolysis oil is converted to water, carbon dioxide, and light gases during the upgrading process.”

KiOR’s very small amount of revenue was coming from this first plant, and Wall Street reacted harshly to the disclosure. Its stock dropped considerably. Shortly after the news an investor lobbed a class-action lawsuit at the company, claiming Kior execs misled investors in terms of how far along the company was towards reaching steady-stage scaled-up commercial production. A second lawsuit was filed by another investor at the end of 2013 charging a breach of fiduciary duties and alleging misleading statements about the progress at the factory.

To understand why volume targets are so important, you have to know a little something about fuel production. For biofuels, everything depends on scale, price and efficiency. It’s relatively easy to make small one-off batches of the stuff — a lot of startups and large companies have done this. But scaling the biofuel production up to the types of volumes that the oil industry operates on, at the cheap prices that fossil fuels are sold at, is another story entirely.

A project with the University of Florida to tap pine trees for biofuels.

No company has done this with next-generation biofuels to date. It’s particularly hard with plant waste at scale, which involves establishing a large source for the feedstock (like wood chips, energy crops, or bio waste) and transporting that feedstock to the factory and then establishing a process to use the tech to crunch these various plants down into the biocrude.

A KiOR researcher

A few months after missing its initial volume targets, in January of 2014 KiOR decided to idle production entirely at that factory. According to its annual report, the company cited “structural bottlenecks, reliability and mechanical issues, and catalyst performance.” That KiOR said its catalyst — the secret sauce — isn’t performing as expected is particularly worrisome.

KiOR said it plans to restart the facility after it’s optimized the factory, after it’s hit research and development milestones around improving the process and the catalyst design, and after it’s raised more financing. One thing is clear: it needs more outside funding soon — within weeks — if it’s going to continue operating at all.

KiOR says it had about $9 million in cash and cash equivalents as of February 28, 2014, and it needs to raise an additional $25 million to $30 million in either debt or equity to fund the ongoing operations for the next twelve months. If it doesn’t raise any more outside funding it will have to default on its debts and file for bankruptcy.

Khosla extends a lifeline, but for how long?

Khosla Ventures has funded the company from the beginning and they’ve continued to the fund the company even in its struggling days. The fund owns much of the company, and has controlling voting power — clearly they have considerable interests in keeping the company alive.

Vinod Khosla speaking at Green:Net 2010.

On March 16, KiOR said it received a letter of commitment from Khosla Ventures for $25 million in cash. That cash is supposed to be dolled out in amounts of $5 million per month, but only if Kior can hit certain performance milestones. If the terms of this funding commitment aren’t finalized by April 1, KiOR says it could default on its debts to organizations like the Mississippi Development Authority, and it could be forced to declare bankruptcy. KiOR needs to raise $25 million to $30 million beyond this commitment from Khosla.

KiOR was also offered debt terms from Khosla and Bill Gates for a second tranche of financing recently, but that’s based on KiOR’s ability to raise hundreds of millions of dollars in project financing from other sources, and KiOR said in its annual filing that it doesn’t expect to be able to hit that financing goal. Eventually to scale up and build future factories it would need to raise a large amount of project financing.

KiOR’s tale is a familiar one that’s happened to dozens of companies in the cleantech sector. KiOR says in a moment of truth in its annual report:

The costs and time involved in operating our Columbus facility have been much higher than we initially anticipated.

While KiOR has had moments in its life where it was successful by some metrics, if the company isn’t able to scale its biofuel to commercial scale, it’s all for nought.

Khosla Venture’s shares — once worth over a billion dollars — are worth a fraction of that when the stock is under $1 per share. Who knows if Mississippi will get its loan back. Alberta Investment Management, which invests on behalf of the Alberta government, had significant money in Kior, too.

If KiOR defaults on its loans and files for bankruptcy it will join the ranks of some of the first wave of cleantech investments — like Solyndra and Fisker — that raised money to build a product that, for whatever reason, wasn’t quite right. After raising hundreds of millions of dollars these companies realized the expensive mismatch but by then it was too late.

As some Valley-backed energy companies like SolarCity, Tesla and Opower have started to get traction, let Kior’s story remain yet another cautionary tale for entrepreneurs and investors trying to innovate in a difficult market.

]]>https://gigaom.com/2014/03/25/as-kior-stumbles-its-another-cautionary-tale-for-energy-innovation/feed/9Snake oil energy salesmen & green bamboozlershttps://gigaom.com/2012/04/26/snake-oil-energy-salesmen-green-bamboozlers/
https://gigaom.com/2012/04/26/snake-oil-energy-salesmen-green-bamboozlers/#commentsThu, 26 Apr 2012 07:00:01 +0000http://gigaom.com/?p=514525When a friend of mine who follows clean power and greentech closely sent me Bloomberg’s story on Rocketjet, I burst out laughing. We have an unspoken contest over who can send each other the worst scams in the energy and green industries. Rocketjet’s hopes for perhaps crowd-funding its water atomic engine that will kick off a “Free Energy Era” is one of the more obvious ones — enough to draw the attention of the often straight-laced Bloomberg, and also to become a mini-symbol of all that could go wrong with the new crowd-funding act.

But after the initial guffaw, Rocketjet got me thinking: why are there so many snake oil salesmen and scam artists in the energy space? Other gems that have emerged in recent years are the solar developers at Matinee Energy (awesome piece by the Phoenix New Times on these folks), biofuel company Cello Energy, which was sued in court for fraud, the oft-discussed capacitor maker eeStor, which has over-promised and never delivered, and the biochar ponzi scheme Mantria, whose lead investment broker funnelled other people’s funds into, among other things, his own penchant for prostitutes (another amazing local report covered those guys).

And yes, I know all sectors have their own charlatans. The web, in particular had more than its fair share in the 90’s dotcom boom. But the green energy sector has its own specific brand of snake oil salesman that benefit from the difficulties of knowing and proving breakthroughs in science; the optimism of investors who want to give their funds to investments that have a higher aim; and the fact that a major breakthrough in the trillion-dollar energy markets could actually be a massive financial opportunity.

Some of these energy scams have the imaginative do-gooder power and infrastructure buildout of the monorail scheme. Put the money into building out the infrastructure-heavy project and it’ll bring jobs, revitalizing a depressed area, and also save the planet (misplaced clean power projects or factories come to mind for this type).

Other energy scams involve a breakthrough that is so large that it’s, well, not scientifically possible. Things that tout free, infinite clean energy are often too good to be true. And these companies aren’t even necessarily scams, but perhaps over eager or incorrect scientists. There’s been more than a few times when scientists have called BS on venture-backed green startups.

The problem with these colossal-sounding breakthroughs is that they are near-impossible to prove even to other scientists. Take eeStor, which probably wouldn’t consider itself a scam, but which promised huge gains for its ultracapacitor yet never publicly proved its technology nor showed off or commercialized its tech.

Even for a seasoned energy investor, it’s hard to distinguish between an outright scam, a really bad idea and a high-risk project. The majority of some investors’ green portfolios could be allocated to super high-risk startups, which probably won’t work and won’t ever make money. But those wouldn’t necessarily be scams — just investors with a high tolerance for risk (and it’s easier if it’s high risks with other people’s money).

There’s also just the reality that energy entrepreneurs that are trying to crack the very difficult greentech world are sometimes a little “out there,” to begin with. As Bill Gates put it, the world needs hundreds of “crazy energy entrepreneurs” that think their idea alone can solve the energy problem. The energy problem is really, really hard, and will need quite a few amazing breakthroughs to deliver progress.

That’s the real problem with the outright energy scams. The crazy energy entrepreneurs we so need and love won’t be able to get the funding or partnerships they need if the bad apples tarnish the sector. But at the end of the day, they do make for some pretty fun reading.

]]>https://gigaom.com/2012/04/26/snake-oil-energy-salesmen-green-bamboozlers/feed/18Cello Energy Finally Out of EPA ’11 Projection After Bankruptcyhttps://gigaom.com/2010/11/30/cello-energy-finally-out-of-epa-11-projection-after-bankruptcy/
Tue, 30 Nov 2010 15:58:36 +0000http://gigaom.com/?p=265679Cello Energy, the beleaguered, infamous biofuel company that was hit with fraud allegations, has finally dropped off of the Environmental Protection Agency’s (EPA) list of potential cellulosic ethanol suppliers for 2011. I seriously can’t believe the company was on the list for so long.

What’s the reason? Well, first off, bankruptcy. The EPA notes in its final rulemaking for the 2011 Renewable Fuel Standard (a mandate that determines the percentage of transportation fuels that has to be made up of biofuels), which it released this week, that Cello Energy filed for bankruptcy on Oct. 20, 2010. In addition, the EPA writes that Cello Energy has experienced “feedstock preparation and handling issues” at its plant in Bay Minette, Ala., and Cello’s former litigation issues have “also provided a set-back.”

Even up until this summer, the EPA was counting on Cello Energy to provide a significant amount of the projected cellulosic ethanol that the government agency thought would be produced in the U.S. in 2011. The EPA projected as recently as July that Cello Energy would contribute up to 5 million gallons (8.5 million ethanol-equivalent gallons) of cellulosic diesel, which would have worked out to up to a third of the total 25.5 million ethanol-equivalent gallons of cellulosic biofuel that the EPA saw as the potential upper bound of what could be produced in 2011.

However, this week the EPA found in its final rulemaking that cellulosic ethanol companies in the U.S. would only be able to produce 6 million ethanol-equivalent gallons, from five companies, including Range Fuels, DuPont Danisco, Fiberight, KL Energy, and KiOR. In addition to removing Cello from the 2011 projection list, the EPA also cut out a project from Bell BioEnergy that it also used for 2011 projections as recently as this summer. The EPA states in its final rule making that Bell BioEnergy’s cellulosic diesel project “has been terminated.”

The tiny amount of cellulosic ethanol now being projected for 2011 by the EPA, and the removal of these two companies from the projections list, shows just how much uncertainty and risk still remains for next-generation biofuels. As the EPA writes in its rule making: “Announcements of new projects, changes in project plans, project delays, and cancellations occur with great regularity.” That’s the understatement of the year.

At the same time, the EPA still maintains many more companies, including 20 plants, could produce potentially 300 million gallons of cellulosic ethanol in 2012.

The risks are just as great for investors in the next-gen biofuels market. Vinod Khosla, founder of greentech VC firm Khosla Ventures, previously supplied Cello Energy with $12.5 million, and backed two of the companies still on the EPA list Range Fuels, and KioR. Cello Energy was previously run by Alabama’s former ethics chairman, Jack Boykin, and in 2007, projected that it could make $16-a-barrel fuel from cellulose derived from things like hay, switchgrass and wood chips.

For more research on cleantech financing check out GigaOM Pro (subscription required):

]]>EPA Still Betting on Cello Energy to Meet Next-Gen Biofuel Targethttps://gigaom.com/2010/07/15/epa-still-betting-on-cello-energy-to-meet-next-gen-biofuel-target/
https://gigaom.com/2010/07/15/epa-still-betting-on-cello-energy-to-meet-next-gen-biofuel-target/#commentsThu, 15 Jul 2010 19:29:57 +0000http://earth2tech.com/?p=61989Cello Energy, a startup run by Alabama’s former ethics chairman and backed by Khosla Ventures that has been beset by production delays and fraud allegations, still ranks among the companies that the Environmental Protection Agency believes is most likely to help meet federal targets for cellulosic biofuel production in 2011.

According to the EPA’s latest proposal for the 2011 Renewable Fuels Standard (a rulemaking for what percentage of transportation fuels has to be made up of biofuels in 2011), the agency expects Cello Energy’s plant in Bay Minette, Ala. to contribute up to 5 million gallons (8.5 million ethanol-equivalent gallons) of cellulosic diesel. That works out to up to a third of the total 25.5 million ethanol-equivalent gallons of cellulosic biofuel that the EPA sees as the upper bound of what could be produced in 2011.

Hello Cello

The projected fuel contribution from Cello is dramatically lower than the EPA’s previous estimates of 70 million from Cello. But the fact that Cello makes it onto the list of candidates “most likely” to make cellulosic biofuel commercially available in 2011 shows just how much uncertainty and risk riddles this nascent sector.

Here’s the deal with Cello: Back in 2007, the company promised pulp maker Parsons & Whittemore Enterprises (P&W) that it would make $16-a-barrel fuel from cellulose derived from things like hay, switchgrass and wood chips. Cello reportedly accepted a $2.5 million investment from P&W in 2007 to help finance its first plant, and agreed to use discounted wood waste from the company as feedstock.

But in July 2009, jurors in a federal court in Mobile, Ala. decided that the company’s original claims were fraudulent. The court ordered Cello to pay more than $10.4 million in a case where “a string of witnesses testified that samples of the fuel allegedly produced at Cello’s facility….were derived entirely from fossil and not renewable sources,” as the Alabama Press-Register reported at the time.

The government’s latest research turned up that Cello is still in the process of “assessing feedstock preparation,” (primarily wood with some hay) and “handling issues that must be resolved before they are able to again attempt start up and production at this facility.”

The company’s main strength at this point is its possession of a “structurally complete” production facility in Bay Minette, Ala. that’s large enough to produce up to 20 million gallons of diesel per year. That “puts Cello ahead of many potential biofuel producers,” writes the EPA, but “they have yet to be able to produce biofuel at anywhere near the production capacity.”

The current estimate that Cello will be able to produce no more than 5 million gallons of cellulosic diesel, if that, in 2011, suggests a lesson learned — just last year the EPA estimated Cello could produce up to 70 million gallons of cellulosic biofuel in 2010.

Uncertain Market

The EPA acknowledges that its biofuel mandate projections involve a high degree of uncertainty, noting that its evaluations are “based on evolving information about emerging segments of the biofuels industry.” The agency also emphasizes throughout the report that the estimates included in its proposal are meant to mark the “upper bound” of possible production volumes — not the final volume that will be used to set the 2011 standard.

For the cellulosic biofuel (including ethanol and diesel) figures, the EPA says it “researched all potential production sources by company and facility,” whether in the planning stages, under construction or already churning out some amount of fuel. Then, the EPA explains:

“From this universe of potential cellulosic biofuel sources we identified the subset that had a possibility of producing some volume of qualifying cellulosic biofuel for use as transportation fuel in 2011. We then conducted a rigorous process of contacting all of these producers to determine which ones were actually in a position to produce and make available any commercial volumes of cellulosic biofuel in 2011.”

Through this process, the EPA has estimated that seven facilities have potential to crank out 25.5 million ethanol-equivalent gallons of cellulosic biofuels for transportation use in 2011. According to the EPA’s proposal, the agency believes it “could justify” a requirement of between 6.5 million (the requirement for 2010) and 25.5 million ethanol-equivalent gallons of cellulosic biofuel for 2011 (this represents 5 million-17.1 million physical gallons). Biofuels Digest called this range “stunner” of a drop from a previous call for cellulosic biofuels to contribute 250 million gallons.

As the EPA points out, it has a difficult task projecting the volume of cellulosic biofuels that will be produced in the next year, given that:

“Currently there are no facilities consistently producing cellulosic biofuels for commercial sale. Announcements of new projects, changes in project plans, project delays, and cancellations occur with great regularity. Biofuel producers face not only the challenge of the scale up of innovative, first-of-a-kind technology, but also the challenge of securing funding in a difficult economy.”

Cello faces not only these hurdles, but also the added challenge of rebuilding its reputation. Time will tell if it’s up for the task, as well as how much the EPA changes its stance by the time of its final ruling on November 30. During the next few months the agency will be collecting comments on its proposal and reports from renewable fuel producers on their outlook for biofuel supplies over the next five years.

Cali’s eBay Approach to Energy: California utility regulators have proposed a “reverse auction market” feed-in tariff for renewable energy projects in which developers would bid on power purchase agreements. The energy company offering the lowest electricity rate to utilities in a given project would win the contract. — NYT’s Green Inc.

Climate Policy More Popular Than Health Care?: While Obama’s health care has been staggering in the polls lately, his energy policies — including the proposed cap and trade system — have relatively broad support. — TNR’s The Vine

DOE Throws a Bone to Hydrogen: “After trying to cut research funding by hundreds of millions for hydrogen technology (most of which was restored by Congress) the Department of Energy has announced a $1 million prize for a hydrogen technology breakthrough…But plenty of rules, red tape, and a short deadline may shortchange this contest of its best entrants.” — Gas 2.0, Edmunds Green Car Advisor

]]>https://gigaom.com/2009/08/28/daily-sprout-174/feed/2Cello Energy Leaves 50M-Gallon Gap in Feds' Ethanol Targetshttps://gigaom.com/2009/07/07/cello-energy-leaves-50m-gallon-gap-in-feds-ethanol-targets/
https://gigaom.com/2009/07/07/cello-energy-leaves-50m-gallon-gap-in-feds-ethanol-targets/#commentsTue, 07 Jul 2009 07:00:17 +0000http://earth2tech.com/?p=36059Updated with comment from the EPA: What’s bad for Cello Energy, the Khosla Ventures-backed startup that an Alabama jury last week decided made fraudulent claims about its biofuels technology, could in a way be good for cellulosic ethanol — or at least open up new incentives for the fuel. As the research firm ThinkEquity notes in a new report, if cellulosic ethanol production falls short of the EPA’s estimate of more than 100 million gallons next year, new incentives are supposed to kick in to support production of the fuel as part of the proposed Renewable Fuel Standard update, or RFS2, which is slated to increase the amount of renewable fuels that must be blended into gasoline.

The EPA has yet to finalize RFS2 (just last week it extended the comment period for RFS2 changes to Sept. 25), and at this point the agency’s initial estimates for 2010 production appear out of reach. According to ThinkEquity, that’s largely because the EPA included a contribution of 70 million gallons of cellulosic ethanol from Cello Energy as part of the estimate in its Draft Regulatory Impact Analysis, and for Cello, 70 million gallons looks like it will be a stretch. The startup has one factory capable of producing, in a best-case scenario, only up to 20 million gallons per year, if the technology works. On top of that, it’s just been slapped with an order to pay more than $10.4 million in the fraud case brought by onetime investor Parsons & Whittemore Enterprises.

In the event of a shortfall (not enough renewable fuels to meet minimum blend requirements), ThinkEquity wrote in its report late last month that the EPA can sell credits that would increase the value of cellulosic ethanol to a minimum price of about $3 per gallon (up from ethanol futures’ current $1.77 per gallon). Alternatively, it can hold off on implementing the rule until after January 2010, giving the industry more time to ramp up production. Delays may be the more likely route, but we are waiting to hear back from the EPA about how Cello Energy’s legal and financial struggles might affect the standard or revised estimates.

The way ThinkEquity tells it, the EPA had no obvious reason to have so much confidence in Cello’s output when the agency put out its Draft Regulatory Impact Analysis with the 70 million-gallon estimate. According to the firm’s report, released late last month, on the Renewable Fuel Standard, it was surprising (to both analyst David Woodburn and people in the biofuels industry) that Cello even made it onto the EPA’s radar, given its limited production capacity and financial resources:

“The major difference between our list and the EPA’s list is the EPA’s inclusion of 50 million gallons coming from Cello Energy plants not yet under construction — a firm that many industry players had not heard of until the EPA’s May announcement”.

Woodburn goes on to say ThinkEquity “probably wouldn’t pay much attention to Cello until we could see evidence of the process output,” but it has been intrigued by a couple factors — first, Khosla Ventures’ $12.5 million investment (part of an agreement revealed in court to also include a pledge to invest another $25 million for additional facilities), and second, the firm that Cello hired to do its patent work. According to Woodburn:

“Cello’s patent work was done by a firm that we worked with when we were in the pharmaceutical industry (think big budgets) over a decade ago — not a typical resource for a solo inventor.”

But those “intriguing” factors hardly indicate an ability to more than triple production capacity within a year. Based on the findings from the fraud case last week, we saw two main lessons for investors getting giddy over a buzzy technology: Do your homework, and prepare to wait. Looking at the EPA’s high expectations for a startup like Cello, with serious financial and technological hurdles ahead if it’s going to scale up its production as planned (not to mention the added challenge of repairing its reputation to win over customers), it seems those lessons can also be applied with more diligence at the federal level.

Update: The EPA press office tells us, “We are continuing to assess the viability of not only Cello, but also the various other technologies and companies in supplying cellulosic biofuel as we finalize the RFS2 standards this fall, and in particular, the cellulosic biofuel standard for 2010.”

]]>https://gigaom.com/2009/07/07/cello-energy-leaves-50m-gallon-gap-in-feds-ethanol-targets/feed/6Lessons from the Cello Energy Biofuel Fraud Case: Do Your Homeworkhttps://gigaom.com/2009/07/02/lessons-from-the-cello-energy-biofuel-fraud-case-do-your-homework/
https://gigaom.com/2009/07/02/lessons-from-the-cello-energy-biofuel-fraud-case-do-your-homework/#commentsThu, 02 Jul 2009 23:09:36 +0000http://earth2tech.com/?p=35913As far as speed bumps for cellulosic ethanol ventures go, this one’s a doozy: Jurors in a federal court have ordered Cello Energy, a biofuel startup run by Alabama’s former ethics chairman, Jack Boykin, and backed by both Silicon Valley cleantech investors Khosla Ventures and pulp maker Parsons & Whittemore Enterprises, to pay more than $10.4 million in a fraud case. According to the Alabama Press-Register, back in 2007, Cello promised P&W that it would make $16-a-barrel fuel from cellulose derived from things like hay, switchgrass and wood chips — and it has gone downhill from there. The case suggests at least two lessons for investors getting giddy about a buzzy technology: do your homework, and get ready to wait.

Fraud, of course, is unacceptable. But it’s also hard to sympathize with investors that threw down millions of dollars without knowing what they were really funding. Reading the blow-by-blow coverage of testimony and heated arguments in the Cello Energy trial (P&W’s lawyer at one point compared Cello to an adulterous spouse), it becomes clear that in a time when VCs were tripping over themselves for biofuel plays, P&W and Khosla Ventures weren’t exactly diligent. The excuse? P&W CEO George Landegger said he trusted Boykin after he promised to invest his own money in the $25 million project. For Khosla Ventures, whose founder Vinod Khosla has called cellulosic biofuel his “real love” and invested in more than a dozen biofuel companies, due diligence was not necessarily a deal breaker, and according to emails revealed in court between Khosla and partner Saul Kaul, Boykin refused to give the investors enough time for due diligence. That made the deal “nerve-wracking” for Kaul, but Khosla wrote, “Great job on this one. Herculean effort. But my bet is it will pay off.”

A key difference between Khosla and P&W’s outlooks on Cello and the Boykins right now seems to be the time frame in which they might have expected to see results. P&W took a stake in the venture early on, and may have expected swift commercialization (the CEO reportedly described the startup’s facility as underwhelming). Khosla, meanwhile, with his love for cellulosic biofuel, knows well that commercialization of a new cellulosic biofuel technology will take longer than that. Kaul reportedly told jurors, “We didn’t expect it to work right out of the gate…We’ll stand by patiently and supportive.” If the technology does pan out, Khosla Ventures will get about half of Cello’s revenues. If it doesn’t, well, the firm has plenty of other bets.

P&W also sued Khosla Ventures, claiming that the venture firm committed what’s called “tortious interference” — basically meddling with its business relationship with Cello and reducing its value (a bit curious, considering P&W’s claims that Cello’s process doesn’t actually work). The gist of P&W’s complaint about Khosla’s investment — made without P&W’s knowledge — is that it diluted the value of P&W’s stake, the Press-Register reports. P&W’s agreement with Cello included an option to invest another $10 million for a one-third ownership share in the company.

]]>https://gigaom.com/2009/07/02/lessons-from-the-cello-energy-biofuel-fraud-case-do-your-homework/feed/17For AMD, ATI Buy Turns Into a Graphic(s) Bloodbathhttps://gigaom.com/2009/01/20/amd-chipping-away-at-ati-buy/
https://gigaom.com/2009/01/20/amd-chipping-away-at-ati-buy/#commentsTue, 20 Jan 2009 15:03:16 +0000http://gigaom.com/?p=35913Qualcomm (s qcom) said today it has purchased AMD’s handheld graphics unit (acquired during AMD’s $5.4 billion acquisition of graphics chipmaker ATI Technologies) for $65 million. The deal shows that AMD is betting big on full-performance machines, from servers to laptops — rejecting its rival Intel’s (s INTC) move into the netbook and smartphone world. It also bolsters the claim that AMD paid far too much for ATI back in 2006. So far AMD has written off $3.2 billion from the acquisition, and sold some ATI units — such as this one, and the DTV assets — for a song.

AMD has already passed on making the brains for mobile Internet devices — saying instead it will focus on full-performance, ultra-thin notebooks. Now it’s abandoning the graphics portion of the mobile market to Qualcomm. Should these mobile Internet devices take off, companies such as Nvidia (s nvda), which offers an integrated CPU and GPU system on a chip that is power efficient, will have a huge advantage over the many chipmakers crowding this market. This is why Qualcomm likely bought these assets, and why Apple (s appl) is building its own integrated SoC for the iPhone.